AMS News

Tuesday, February 21, 2006

Broadcast radio prepares a content expansion to rival satellite offerings

Los Angeles Times By Martin Miller, Times Staff Writer

Terrestrial radio is beaming a new message to satellite radio — and wants to make sure that its 200 million-plus daily land-based listeners and Wall Street investors overhear every word: Your 15 minutes of fame are over.

Pummeled by an enormously successful holiday media and publicity blitz, terrestrial radio this week begins a multi-pronged marketing counteroffensive that it hopes will bring its overhead competitors back down to earth, preferably in one huge crash.

Cooperating in unprecedented ways, terrestrial radio broadcasters are officially unveiling a significant tech innovation of their own and a high profile nationwide campaign to trumpet it. One campaign that began Monday in Los Angeles and more than two-dozen other big cities heralds terrestrial's long-awaited entrance into the digital age.

This latest, more muscular marketing push comes on the heels of several smaller independent efforts over the past couple of months, in which individual radio companies tried to highlight one of their strongest selling points against their roughly $13-per-month competitors: We're free.

The term "free radio" is being used, well, freely around town in billboards advertising DJs on the AM and FM dials, such as Howard Stern's L.A. replacement, Adam Carolla, on KLSX-FM (97.1); Mancow Muller on KLAC-AM (570) is being hailed at the King of all Free Media.

At stake is whether traditional radio can recapture some of the consumer and industry buzz temporarily ceded to satellite radio in the wake of shock jock Stern's defection to Sirius Satellite Radio. (Oprah Winfrey will be going to Sirius' larger rival, XM Satellite Radio). Industry observers wonder whether these initial steps by terrestrial radio will be enough to maintain it as a dynamic media business.

Like other forms of old media (newspapers, network television), terrestrial radio must fight the perception that it will inevitably lose major ground to the new media, even though it can still appeal to mass audiences. But radio needs to fight back fast and hard against its satellite competitors, according to analysts.

"If you've got 11 million satellite subscribers there's nothing trivial about that," said Mark Ramsey, president of Mercury, a San Diego-based radio research and marketing company, referring to XM and Sirius' current subscriber base. "I think what you're seeing now is radio responding to the chorus on Wall Street that is saying, 'Hey, what's up with you?' "

Radio's answer to that long-simmering question is HD digital radio, the industry's next-generation product that can best compete with satellite's sound quality and dizzying programming options. In the works for more than a decade, digital radio will enable broadcasters to significantly upgrade their signal — AM will sound like FM, which in turn will sound like a CD, they say.

Further, the compressed digital signal will allow for multicasting, which means radio stations will be able to divide their dial spot into anywhere from two to four channels. For instance, Clear Channel Radio's KBIG-FM will continue to air an adult contemporary format at 104.3, but now is also playing round-the-clock disco hits on its side channel, 104.3-2.

Nationwide, only about 700 stations are broadcasting in digital and just about 260 of those stations are or will soon be multicasting, including about a dozen in Los Angeles. Industry officials say both those national figures are expected to more than double within the next year.

"From a creative standpoint, the secondary channel will allow us to be more experimental," said Kevin Weatherly, program director at KROQ-FM (106.7-FM), which expects to begin multicasting a harder-edge rock channel at 106.7-2 within several months. "It's going to double the choices overnight and at the end of the day it's going to be great for the listener."

Like KROQ-FM and KBIG-FM, a station's multicast typically serves up niche programming loosely related to its main format. The radio industry has pledged the side channels will be commercial-free — at least for the next few years. Starting this week radio stations in 28 major market cities will begin running ads — valued at some $200 million — to alert consumers of the digital advancements and, they hope, to stimulate real sales.

"This is sort of a marketing person's dream," said Peter Ferrera, president and CEO of the HD Digital Radio Alliance, a 12-member consortium of the nation's leading radio companies formed last year to roll out the new product. "We're selling radio on the radio to people who are listening to the radio."

HD radio, however, has some major obstacles to overcome before the market situation could fairly be described as dreamy. While it's true digital radio is free, consumers currently need to shell out at least several hundred dollars to buy a special receiver to hear it.

The in-car incarnation

Analog radios, of which there are an estimated 700 million units in the U.S. alone, do not benefit from the digital signal. For that, consumers will need to purchase a special receiver, which only recently dropped below $500. Radio officials would like to see that figure drop to around $150 — a price point at which they believe consumers will take quicker advantage.

Another problem for HD radio is sheer numbers — right now, there are probably less than 100,000 units in use nationwide. Many stations that have been broadcasting in digital or multicasting may have been doing so to audiences in the thousands, or even less. And, at the moment, HD Radio doesn't have a Howard Stern-like selling point to crystallize interest and demand.

The most urgent matter for the radio industry is negotiating a deal as soon as possible with automakers to have digital radios installed in cars. So far, just BMW has agreed to put them in its cars. Meanwhile, radio officials have been feverishly lobbying American automakers to follow suit.

"It's critical they get into cars, where most of the listening takes place," said Scott McKenzie, Billboard Radio Monitor's managing editor. "If they can't do that, it's not going to be a going concern."

For their part, XM and Sirius Satellite Radio regard terrestrial's digital launch and accompanying marketing as more circling of the wagons. Driven by the holidays and a publicity windfall surrounding Stern's move to Sirius, both companies combined to score nearly 2 million new paid subscribers in the last quarter of 2005.

The huge gains came at a heavy cost — both companies reported a combined quarterly loss of roughly $600 million as they continued to shell out big dollars for publicity and their marquee talent. Meanwhile, a high-ranking XM official resigned from the company's board earlier this month and warned of a possible financial "crisis."

Despite the financial hemorrhaging, the two companies contend subscribers will reverse the bleeding, and indeed have made bold predictions for their future — Sirius says it will double subscribers to 6 million by the end of this year; XM says it will have 20 million by 2010.

"We wish them luck," said Patrick Reilly, a Sirius spokesman, of terrestrial's move to digital. "We have more than 125 channels of great programming, including commercial-free music channels, and so we think that what is good for radio will be very good for us."

Even at this point, terrestrial radio officials don't like to admit satellite is a threat. Joel Hollander, CEO of CBS Radio, formerly known as Infinity, which was Stern's former radio home, characterized satellite as a "boutique" business. Still, he praised Sirius' marketing chops in publicizing the transition.

"I don't think there's a person on the planet that doesn't know Howard went to satellite," he said. But, he noted, the strategy could easily backfire. "The next quarter for Sirius is critical," added Hollander, whose company made millions off of Stern's popularity. "You either are going to sign up or you're not."

But there's little doubt among industry observers that satellite's emergence played a substantial role in an almost unheard-of alliance between intense radio rivals including behemoth Clear Channel and CBS Radio. After more than a half-dozen high-level meetings over nearly nine months, the group officially came together in December to accelerate the push for digital radio.

"I think everybody, especially on Wall Street, wants to see we're investing in our future," said Hollander. "Our group may not agree on a lot of things, but we do agree that together we can really help our industry and we're going to do just that."

One way terrestrial radio intends to improve its position is through aggressive marketing. The various campaigns started ramping up in October of last year when Stern was jumping from terrestrial to satellite. Then CBS stations began branding themselves as "Free FM." For the record, CBS officials deny the "free" is a reference to cost, but rather to the spirit of its content, as in "free form" or "free for all." Similarly, the "HD" in HD radio doesn't actually stand for "high definition" either.

"Quite honestly, it doesn't stand for anything," Ferrera said. "The concept was somewhat of a steal from HD television, where viewers know it means better quality."In January and February, the radio industry, with help from big-name artists including the Rolling Stones, Avril Lavigne and Alicia Keys, banded together to air spots titled "Radio. You hear it here first." More campaigns lauding radio's "free, over-the-air" strengths and its ability to provide live on-the-spot news coverage are on the way, according to the National Assn. of Broadcasters, a radio trade group.

As terrestrial radio rolls up its sleeves while it rolls out its product of tomorrow, the message it ultimately is trying to convey to its millions of daily listeners is that rumors of its death have been greatly exaggerated.

"It's like when the 8-track player came out and everybody said it was going to kill radio. Then they said the same thing with cassettes and CDs," said Ed Seeger, president and CEO of American Media Services, a radio development and consulting firm based in Charleston, S.C. "Well, it didn't happen."

No comments: